Fuel for Controversy
Neil Koehler '81 takes the lead in defending corn ethanol.

Story by Mark Kendall / Photos by Robert Durell

Neil Koehler ’81 runs on ethanol, persistence and optimism. He’s been talking up biofuels for more than 25 years now, rising to head the West Coast’s
largest ethanol producer and emerging as a spokesman for the entire industry. But his path to prominence has been more wild, potholed ride than smooth
Sunday drive. Lately, the biofuels biz seems caught up in a smash-up derby.

Just as the ethanol market was taking off, revved by high oil prices and government requirements that it be added to gas, the
fuel’s image was taking hits. A Time magazine cover from last spring distilled the new skepticism in bold type: “The Clean
Energy Myth: Politicians and Big Business are pushing biofuels like corn-based ethanol … All they’re really doing is driving up
food prices and making global warming worse.”

As if the media drubbing weren’t enough, there was big trouble on the business side to boot. Corn prices spiked, then
gas prices plunged, then the credit crisis hit, cutting off the flow of lending to a business that requires investment in infrastructure. At
year’s end, Koehler’s company, Pacific Ethanol, was trading at under a buck a share, and like others in the business, feeling the
squeeze. “It’s a struggle every day,” says Koehler, president and CEO of the firm based in Sacramento, Calif. “But it’s a
struggle worth fighting.”

And one the steady, camera-ready Koehler is up for. “He is the most optimistic, positive-thinking person that I’ve ever met,” says Bob Eckert ’81, Koehler’s first-year Pomona roommate and
longtime friend. He’s competitive, too, adds Eckert, who has played many a Frisbee Golf game with Koehler.

Before settling on political science, Koehler’s first plan at Pomona was to major in theatre, and today he has embraced the
role of taking the industry’s message to TV. In the rapid-fire, gotta-keep-this-interesting world of cable news, Koehler sticks
to a few simple points, finishing his sentences even when he’s interrupted, touting his product as a domestically-produced
alternative to our “very dangerous dependence on oil.” “Ethanol today is providing the only meaningful alternative
to oil and gas in the internal combustion engine,” he said on CNBC in April.

In another of several CNBC appearances last year, Koehler waited to respond while Paul Roberts, the author of The End of
Food, criticized the biofuels industry for, on the one hand, saying that it’s making a difference in fuel supply but, on the other
hand, saying biofuel production doesn’t affect food prices. “It doesn’t wash,” said Roberts.

Getting his turn, Koehler deftly agreed that “there is no question that ethanol has helped support the price of grain in
this country.” But then he said that’s a good thing because rising corn prices have eliminated the need for billions of dollars in
U.S. subsidies for growers. He went on to note that his company uses feed corn to make its ethanol and the leftover corn mash
is then sold for cattle feed. And he got the last word in before the segment ended: “High oil prices are the No. 1 cause for the
high price of food—not biofuels—and we are part of the solution to the high oil prices.”

What’s this guy full of? Granola, it turns out. A long-time Green Party member who grew up in nature-loving
Portland, Ore., he drives a Prius that recently surpassed 70,000 miles. Despite his CEO status and income, Koehler
lives in an eco-conscious subdivision that sprouted in Davis, Calif. in the ’70s with solarpowered
homes, community gardens and shared yards. This is a CEO who only owns one usable suit for investor meetings
in New York. Rest of the time, a sport-coat will do.

Of course, his bearded, guitar-playing green vibe doesn’t guarantee Koehler is right about using corn as a fuel source. In
recent years, the upstart industry has drawn criticism over issues that include fears that clearing grasslands and forests for biofuel
crops will increase greenhouse gas emissions. Some researchers have even questioned whether ethanol yields more energy than
it takes to make it.

A University of Minnesota study from 2006 made more of a middle-of-the-road assessment, noting that corn ethanol “delivers
25 percent more energy than is used (mostly fossil fuels) in producing it, though much of that 25 percent energy dividend
comes from the production of an ethanol byproduct, animal feed,” as reported on the university’s Web. But the study also
found that even if all the corn in the U.S. were used to produce ethanol, that production would only offset about 12 percent of
gasoline use.

Corn ethanol has been “a success in demonstrating that we can make significant amounts of liquid fuel” from renewable
sources, says Professor David Tilman, coauthor of the study. Still, the fuel’s net energy yield won’t do for the long term, and
Tilman is “hoping it will soon be replaced by the next generation of biofuels.”

Koehler agrees that corn ethanol isn’t the complete solution and that the nation will need a broad range of alternative energy
sources. “It’s not perfect,” he says of corn ethanol. “But while we have an industrial society and people who drive cars … we
have to make these tradeoffs.”

His company and others are working on making ethanol from cellulosic sources—wheat straw, switchgrass, poplar trees—
in pursuit of what Koehler calls the “Holy Grail” of ethanol production. But for now there are obstacles to large-scale cellulosic
production and corn, Koehler says, remains the most economically viable ethanol option for the U.S.

Ethanol’s practicality is what attracted Koehler in the first place.

While at Pomona, Koehler took a year off and traveled the Middle East, where he was enthralled with the region’s history,
religions and “this crazy thing called oil.” He graduated in the aftermath of the ’70s oil crisis: “I just came out of school saying
‘this is a real problem.’”

Post-Pomona, he went on to UC Davis through a Kellogg Foundation program designed to teach future policy leaders
about agriculture. After taking a job with the state’s Department of Food and Agriculture, he was turned onto ethanol, which he
quickly saw as the most viable way to reduce the nation’s dependence on foreign oil, something that could make “a very
immediate and meaningful contribution.”

Through his state job, he met ethanol innovator Rick Eastman, and they would wind up running one of California’s
first ethanol plants, built in Rancho Cucamonga, converting the oozy aftermath of soda pop and beer production into ethanol as
a niche business. In those pioneering days, the state’s tiny ethanol industry was made up of an adventurous, idealist mix of
farmers and entrepreneurs. “There were a lot of people that were in it almost for religious reasons,” Koehler says.

Koehler became the ethanol evangelist, working the halls of the state capitol, touting its potential. “From a California perspective,
he was probably Mr. Ethanol in terms of having the early vision and having the perseverance,” says Jack King of the
California Farm Bureau. “He really was at the forefront keeping the issue alive and talking it up. The early days weren’t easy.”

Far from the corn-fed Midwest, California wasn’t enthused about ethanol. In the ’90s, when federal regulations required
the state to add an oxygenate to gas to reduce emissions, California picked MTBE (methyl tertiary butyl ether). Then evidence
emerged that MTBE was polluting groundwater and the state banned it in 1999. California turned to ethanol as the
alternative, and this move by the nation’s most populous state was a big break for ethanol—and Koehler.

He had been running an ethanol marketing business when he connected with former California Secretary of State Bill Jones, a
Republican rancher-farmer, who was also interested in the possibilities of ethanol. Out of that, Pacific Ethanol was born in 2003
with Jones becoming chairman of the board and Koehler president and CEO.

They were onto something. Not only was California now in the game, but as gasoline prices rose, national interest in ethanol
was increasing as well. Investors turned on to alternative fuels. When Microsoft founder Bill Gates pumped $84 million into
Pacific Ethanol in 2006, it drew plenty of attention, which led to more investment in the firm.

In his early crusading days, Koehler recalls, he used to tell his wife that ethanol “is going to be something big,” and she
would jokingly confirm what he knew: “Yes, you’re a dreamer.” After the Gates investment came through, though,
Koehler remembers her saying, “I think you’re right. This is something big.”

Ethanol got another boost when then-President Bush touted it in his 2007 State of the Union address. Later that same year,
Congress passed an energy bill mandating increased ethanol fuel use down the road.

Pacific Ethanol’s plan was to quickly carve out a big chunk of the West Coast market, distilling ethanol close to market and
also selling the corn-mash after-product as feed for cattle nearby. Now with five plants in three western states, Koehler’s company has succeeded in boosting its production from 65 million gallons
in 2007 to 220 million by the end of 2008.

The company’s latest, $150 million plant opened in Stockton, Calif. in September. Showing off the plant, Koehler
explains that in a sense the facility is just a big distillery, with the product going through a process of heating and cooling on its
way to becoming ethyl alcohol—ethanol. He walks beneath an elaborate series of overhead pipes that deliver hot and cold liquids
to the next stage of production. It’s all carefully monitored on computer screens in the control room.

But beyond the tightly-controlled setting of this plant, metaphorical pipes are bursting all over the place these days.
Last fall’s stock market bust and investor panic cut off the flow of funding to the ethanol business, which was already struggling
from temporary overbuilding and high corn prices. The global recession also pushed down oil prices, which pushes down
ethanol prices.

Now Pacific Ethanol and other upstart ethanol businesses are battling for survival. One of the largest, VeraSun, recently filed
for bankruptcy. In January of this year, Koehler’s company’s announced it was temporarily shutting down its Madera, Calif.
plant due to “extended unfavorable market conditions.”

“There will definitely be a shakeout,” says Koehler of the highly-fragmented ethanol biz. “We’re seeing it today. There
will be a consolidation.”

But even with the near-term trouble, Koehler points out that ethanol’s future looks bright. Federal mandates call for annual
production of 36 billion gallons of biofuel by 2022, with up to 15 billion gallons coming from corn.

As for the current challenges, Koehler has been through plenty of ups and downs in this business before. He deals with
the stress by playing Frisbee Golf with a buddy after work, running or jogging through the entire game. Then, later at night,
he gets back to work on his computer at home.

Whatever the complications of the wider world, Koehler seems to have found his own endless, renewable energy
source.